This is a faulty analogy to product markets, and is true only if certificates are consumed. They are not.
I don't quite understand this. Are you objecting to the quoted argument?
If X is being bought and sold for $1, and you can make X for less than $1, then you can make X and sell it, at a profit. Where does this assume that X is being consumed vs. saved?
Similarly, if X is being bought and sold for $1, you would be better off buying a unit for $1 than making it yourself for a higher price. This is true regardless of what you plan to do with X.
The better analogy would be to the market for money, where the demand for money is greatly affected by the public's desire to hold cash.
Yes, the demand for certificates is entirely determined by funders' desire to hold them. This analogy doesn't seem to undermine the proposal. If philanthropists decided they didn't value certificates any more, the price would drop. But a philanthropist shouldn't even be troubled by being stuck with a certificate they can't sell, it's just the same as having made a grant. The money is gone, but the good is done.
A related point is how to validate that the activity claimed to have an impact actually occurred. This is a systemic risk similar to the problem of assigning credit ratings to collateralized debt obligations. Someone has to say whether or not the activity occurred. If the person saying so is revealed to have exercised insufficient diligence, then the market has a crisis of confidence.
The same problem is faced by someone making a grant or offering a prize, and it should be addressed in the same way. For example, GiveWell can do exactly the same thing they currently do, but now it is valuing certificates rather than recommending donations. Do you think there is a material distinction between these cases?
Someone might purchase a certificate based on GiveWell's recommendations and later discover that they are bogus. But exactly the same thing could happen today, with someone donating based on GiveWell's recommendations and later discovering that they are bogus.
I don't quite understand this. Are you objecting to the quoted argument?
Yes, but I should have been more specific, and I think I probably focused overly much on the sentence about deviation and arbitrage. (I'm blaming jet lag.)
I agree that, if someone can produce certificates at less than what they perceive as a stable-ish price, they will produce more than the price will eventually fall. What I disagree with is the idea (familiar from product markets) that deviation will induce arbitrage (i.e. that an increase in price will induce greater supply of new...
Paul proposes that we could create a market for certificates of impact. The certificates would be created whenever someone does something that has a positive impact in the world.